S.E.C. Real Estate Observer

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First, I want to emphasize that the Society of Exchange Counselors does not endorse any political party and, as a non-profit organization, we cannot engage in any politics. I don’t believe I violate that rule by expressing my opinions in this article. In my opinion, it is an irrefutable fact that our last election proved that much of the country is tending towards a more “progressive” direction. The President and the majority of the US Senate believe in redistribution of wealth and intend to do this with higher taxes and closing tax loopholes, sometimes known as benefits to us and “tax expenditures” to those that believe they can do a better job of spending your money than you can. So with this established, I proceed.

I spent the better part of 1968 and 1969 in a mechanized infantry combat platoon in Vietnam. When I came home, I did what many returning GIs have done for generations: I went to work, full time, and went back to school, also full time. But at 22, things back in Dallas seemed boring. It was time for a Harley and a new social scene. I really liked to shoot pool and was good enough at it to win at least some of the time. This led me to my favorite bar where I met a well-endowed lady with fiery red hair, fell in “lust” and married her. About eighteen months into our marriage, I found her cheating on me. My reaction was immediate. I went back to our rented house, removed all of my stuff (in those days, I could put all my “stuff” in my pick-up), called the landlord and informed him that I would no longer be paying rent, the utilities were notified to take a reading and I was gone. I filed for divorce the next day and it was final in less than 60 days. That was it; it was over. DIVORCE. They write songs about that in Texas. But I married again and it is terrific – songs are written about that in Texas too.

Many of my friends talk about “divorcing” our nation for the trends and laws that seem to continue to reward some for not working and for spending our tax dollars in what we believe are very bad choices. I have heard talk of Costa Rica, Australia and other places. But is leaving the USA really a choice? At least at this time, it is not for me. I cannot see my wife and I divorcing our country, the country I fought for and the country where our sons and grandchildren are. And CHL is not available in any of the countries mentioned. So, I am not leaving.

We are the Society of Exchange Counselors. Many of us are CCIMs also. Some are SIORs. I don’t have any idea what our collective years in the business would be if we added it up, but I know it would be many decades, probably hundreds of years. We pride ourselves on being some of the most creative real estate professionals in the world. We live to have problems delivered to our doors so we can solve them.

Last night the Senate and President decided to raise taxes on many, if not most, of us. They voted to “put it to the rich” and have us pay our “fair share.” As I write this article, the House has not voted on the measure, but that does not make any difference in this article. The President and Senate have shown that something will most likely happen and the House will agree and it will become the law of the land. Every American will be paying more in taxes and our members will pay much more than many. And our fearless leaders did nothing to solve the real problem – spending – but that is another topic.

So, what do we do? How do we react and plan for this new set of rules? What is the solution? One thing for certain, we are in a new world. Our partnerships have sold a lot of property over the last couple of years and we have not elected to do a single 1031. We purposely paid the 15% capital gains tax. I expect that Bill Exeter will be very busy over the next few years. I know that I will be considering 1031s for each of my transactions.

Will we see bartering come back into the mix? Can we barter empty space for services? Maybe we will.

What about styling our transactions where we sell a property using a 1031, take the replacement property free and clear and then refinance the new acquisition? Proceeds from refinance are not taxable.

Will it be better to contribute a property as equity to what would have been a buyer last year? Put your property into the deal and become his partner.

What about taking our commissions in equity?

Do we just slow down? I have a friend who loves to play poker and is always happy when we go to Las Vegas. He is not one of those guys who wins and then loses everything he has gained. He will definitely fold the cards and walk away with a pocket of money. He told me last week that he may spend more time traveling and is expecting to visit Europe this year. His exact words were “How much is enough, Bill? I am not rich but I am comfortable and, at my age, I think it may be time to take it easy for a while.” Maybe he has a point.

These are just a few ideas that I was thinking about on the first day of the New Year as my tax situation changed dramatically. The last few years were good; the next few are going to be different. I bet many of us will dust off Virgil Opfer’s 100 Marketing Formulas.

So, is our nation’s leadership “cheating” on us? I tend to think so because it seems that no one in Washington DC is addressing the real problems and they are burdening the producers with additional taxation but we are not getting good value for our tax dollars. Are our nation’s leaders misleading its citizens by playing poker with our future with massive spending and borrowing and not doing the types of planning each of us have to do every day? But do we give up on our country and leave? Where would we go that would be better? So, if we are not going to file for divorce, then we need to quit walking around like we are gut shot and get to finding solutions.

Maybe our Meeting Managers will schedule some more time for brainstorming at the meetings this year. Let the solutions begin!